NAME: PATRICK N. OMWANSA ADM NO: ELD/B/BBM/511/02740 YR OF STUDY: 2ND SEMESTER 3RD YR UNIT TITLE: CREDIT MANAGEMENT UNIT CODE: HRM 323 LECTURER: DANIEL NYAKERI ASSIGNMENT (CAT 1) Quiz: discuss the components of the macro environment and explain how they affect the organization you are working for? (20 mks). Macro environment factors are uncontrollable external forces that affect how a business operates. They are largely out of the control of the business, and often require changes in operating, management, production, and marketing.
Analysts often categorize them using the acronyms PEST or PESTEL. Broken down, PEST stands for political, economic, social, and technological concerns. PESTEL also includes environmental and legal factors. Political Political macro environment factors include things like tax policies, government-issued safety regulations, the availability of government contracts, and even shifts in the controlling political party. International laws, such as trade agreements and tariffs, may affect the supply and demand chains and available markets for many different companies as well.
Economic A market boom, recession, or growing inflation problem can all change the way an organization plans for the future and operates in the present. Economic factors are often difficult to assess, since economic forecasts and analyses vary widely between experts. Unemployment levels, comparative foreign exchange rates, and the state of the global economy can all help or hurt a business’ ability to get needed components and maintain a stable profit. Social The mood and demographics of the population make up the social area of macro environment factors.
For example, a society that places an emphasis on self-guided jobs with room for creativity may cause organizations to redefine job descriptions and adapt the model of the workplace to attract workers. Social trends, such as a preference for on-demand mobile media devices, can also influence which products a company manufacturers and where it chooses to spend advertising dollars. Technological Technological macro environment factors can influence how an organization does business. A new type of machinery, computer chip, or product created through research and development can help a company stay modernized and ahead of the market curve.
Owners must be able to accurately identify which new developments will be truly useful, and which are just fads. Environmental Environmental concerns are important to businesses both in the short and long term. In the short-term, things like natural disasters can disrupt production and supply operations, or even destroy company assets. Programs such as environmental risk assessment can help companies prepare to handle many of the most likely short-term crises. In the long view, however, businesses may have an interest in ensuring that their supply chains are not destroyed by unsustainable practices.
Legal Legal factors can limit or change how a business operates. For example, they may have to hire additional supervisory staff or purchase safety equipment after a new health and safety law is passed. Child labor laws often limit the hours a minor can work and require set break periods. If an organization employs several minors, it may have to hire additional help to cover the hours when the minors cannot legally work. Legal factors are determined by both local legislation and regional and national laws. In some cases, companies that do business internationally are also affected by international laws.
Hedging Against the Macro Environment Generally, businesses have little to no control over their macro environment. They can, however, prepare for the unexpected by using a PEST or PESTEL analysis. For example, if a business has a manufacturing plant in an area prone to hurricanes, they could hedge against the possible loss by developing an action plan to relocate employees or supplies if threatened by a hurricane. Many organizations conduct regular analyses of the macro environment factors connected to them, and revise their strategies accordingly.
A macro environment comprises the external factors that can influence a business. These factors are often out of the control or management ability of a company. Factors typically include economic, demographic, political, and technological forces in business. Business owners and managers often spend copious amount of time and effort to assess the overall economic environment in order to determine the number and strength of each factor. Strategies and performance reviews can help owners and managers use the macro environment factors to create a competitive advantage for their respective companies.
General economic factors in the macro environment can include supply and demand, number of competitors in the market, availability of economic resources, and efficient production methods employed by companies. Each of these factors impact a company’s production output and potential profit margins when selling goods and services to consumers. Free market economies often have more competition because more individuals and businesses can avail themselves to the raw materials, labor, and facilities in the market.
Demographics relates to information about the consumers in an economic market. This information includes statistics on consumer age, sex, race, religion, education, household size, marital status, and other similar information. Companies use this information to create products and marketing strategies to meet the needs of each consumer in the macro environment. This information also plays a role into general economic factors. Companies must be able to determine consumer supply and demand by measuring consumer income and the desire to spend money on various goods and services.
Political forces typically represent the government agencies and policies responsible for governing a nation’s economy. These policies can relate to business taxes, interest rate regarding loans and availability of currency. Companies often make business decisions based on the tax liability or government involvement in a business industry or sector. Creating business divisions or departments in these areas can decrease a company’s profits and subject it to more compliance laws and regulations, which often increase operating costs.
Technological changes in the last few decades have transformed the way companies do business in the macro environment. Websites, Internet-based software, and fulfillment centers allow companies to sell goods and services in national and international economic markets. Companies can also improve production output and lower costs through technological additions to their company. Companies who implement business technology can force competitors in the marketplace to adjust their practices to meet new product improvements.
Developing an in-house custom software package or application can also shift the macro environment if other companies cannot replicate this technology. Macro environment analysis is a review of all the factors that a company is unable to control. Companies conduct this analysis to stay abreast of the issue in the current business environment. A common tool for conducting a macro environment analysis is the PESTEL framework, which include factors from the political, economic, social, technological, environmental and legal aspects in the business environment.
The ultimate purpose of this analysis is to create a strategy that will leverage as many of these external factors as possible to the company’s favor. The political factors of the PESTEL analysis include the current stability of the government, social welfare policies imposed upon companies, trade tariffs or regulations that restrict international business and tax policies on corporate profits. This information is quite important to businesses, as extremely difficult political situations often result in lower profits and a more inflexible business environment.
A macro environment analysis may focus heavily on the political factors in countries with difficult business environments. The group of external factors for this analysis comes from the economic factors within a country. Companies are unable to control issues like the income of buyers in the market, available credit offered by banks, unemployment, interest rates and inflation found in the economic market. These factors can also affect the company, lowering purchasing power from currency, available credit and inflation, which makes it more difficult for the company to conduct normal business operations.
Social factors included in the macro environment analysis include demographics, wealth distribution, lifestyles and the education of consumers. Each of these factors will determine how a company interacts with consumers. Lower education among consumers, for example, will often lead the company to create marketing campaigns easily understood by a majority of the population. Changes in lifestyle often occur with shifts in the economy, forcing the company to change the quality and/or price of goods.
Technological factors of macro environment analysis include new innovations, the frequency of technological change and new platforms or software used by companies and consumers. Failing to keep pace with technology can put a company behind competitors. Changes to consumer products will also drive this change, as consumers will have certain expectations of technology from products offered by a company. Environmental factors include the items that affect the common living area around the company and its consumers.
Energy consumption, maintaining a livable environment, waste disposal and other items can all affect the natural environment around a business. Companies must be mindful of changes to these laws that can change how they interact with the environment. The macro environment analysis should focus on this as consumers become more aware of the effects of business on environment. Legal factors include regulations regarding competition, employment, health and safety or of issues. Owners and managers must be aware of these laws to prevent lawsuits.
Changes in the law from current cases can also affect how a company does business. The market environment is a term that is used to collectively identify all the elements that have some impact on the actual performance of a market. This includes events and factors that occur within the context of the market itself and also any elements that are based outside the market. The idea behind defining the market environment is to understand what forces are exerting some amount of influence in the marketplace and understand why and how a market reacts to those forces in certain ways.
In understanding the market environment, it is important to consider varying factors that shape the actual movement of the market. These factors are identified as being either microenvironment or macro environment in type and nature. While considering each factor in turn, the process also calls for understanding how all factors work in tandem to create the end effect on the marketplace. The microenvironment aspects of the market environment typically focus on internal elements related to companies and how they perform in the marketplace.
Factors like the corporate structure and organization, the distribution of resources in the operation, and even the policies and procedures that govern interaction between owners, managers and employees are considered as part of this assessment. Along with the characteristics and day-to-associated with the day operational processes of the company, factors such as the working relationships with vendor partners, comparisons with competitors, and the general public perception of the company and its roducts will all play a role in the current status of the market environment. Along with microenvironment factors to consider, there are also factors that are classified as macro environment. Here, the focus is on such issues as the political climate in which the products are produced and offered for sale, governmental legislation that affects how goods are produced and sold, and even the impact of current economic conditions on the ability of the company to remain competitive.
The concept of a macro environmental factor also has to do with the level of consumer confidence that the products enjoy and how that confidence translates into sales. Understanding the market environment as it relates to a given company requires not only identifying all known factors but also having some sense of how those factors blend together to create the setting in which the company must operate.
By having an idea of how all known factors come together to create today’s business climate, it is easier to consider the potential for different market movements in the future, based on the ebb and flow of the influence of different elements. By accurately assessing where the market environment stands today and using that information to project where the market is going tomorrow, the business can make changes in procedures, production levels, or even marketing strategies in order to meet those future challenges and ultimately continue to generate an acceptable level of revenue.